EUR/JPY Long-Term Reversal Formation

EURJPY formed a double top on its daily chart, hinting that a long-term selloff might follow. Price has yet to break below the neckline support around 128.00 to confirm that a reversal is due.

If that happens, the pair could fall by around the same height as the chart pattern or 600 pips. This could take EURJPY down to 122.00 or lower.

The 100 SMA already crossed below the 200 SMA to confirm that the path of least resistance is to the downside or that support is more likely to break than to hold. Price is also trading below both moving averages as an early indicator of selling pressure.

RSI appears to be pulling higher to suggest a return in bullish momentum, and the oscillator has plenty of room to climb before reflecting exhaustion among buyers. Stochastic is also just starting to turn higher from the oversold region to suggest a return in bullish pressure. In that case, EURJPY might still bounce back to the tops at 134.00.

The ECB monetary policy meeting minutes are up for release next, and this might not contain any surprises for euro traders. The European Central Bank would likely keep stimulus in place until the expiration of their PEPP and policymakers don’t seem inclined to hike interest rates anytime soon.

Then again, the same goes for the BOJ since Japan is just starting to recover from the pandemic. This means that the central bank would also likely keep stimulus going for much longer while waiting for the economy to recover.

Risk sentiment could favor lower-yielding currencies for the time being, as the easing of stimulus in some major economies could drive borrowing costs higher soon, thereby weighing on demand for riskier assets. ECB head Lagarde has a speech coming up, but monetary policy hints are not expected.

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